China is significantly tightening regulations on foreign investments that may impact national security and interests. This move follows the recent acquisition of the Chinese AI startup Manus by U.S. tech giant Meta, prompting concerns about the outflow of advanced technologies, critical data, and skilled personnel.
According to China's state-run Xinhua News Agency, the State Council announced new regulations on foreign investment on June 1, set to take effect on July 1.
The new regulations consist of 34 articles that prohibit companies and individuals from transferring restricted goods, technologies, services, and data abroad without government approval during overseas investment processes, including the dispatch of technical personnel, provision of technical support, and operation of training programs.
A new security review system for overseas investments will allow authorities to assess investments that could threaten national security and, if necessary, order their suspension. Violations could result in the confiscation of illegal profits and fines.
Even completed overseas investments can be halted if deemed a national security risk, with authorities able to order the sale of related stocks and assets.
The Hong Kong Ming Pao reported that China has established comprehensive legal grounds to cancel completed overseas investments, suggesting that the risks for foreign investments in sensitive areas like AI technology are increasing.
The regulations also explicitly outline penalties for illegal overseas investments, including orders to halt investments and dispose of assets within a specified timeframe, confiscation of investment returns, and fines ranging from 0.05% to 1% of the total investment amount. Authorities may also impose a ban on overseas investments for up to three years or restrict new business registrations.
Additionally, foreign companies and individuals that discriminate against Chinese entities during the overseas investment process may face corresponding restrictions or bans on their investment and business activities in China under the Anti-Foreign Sanctions Law.
This regulatory tightening comes as the U.S. has been increasing restrictions on China in the high-tech sector. China's measures can be seen as a formalization of its response to enhance scrutiny of foreign investments and technology controls under the guise of national security.
The Ministry of Commerce stated that these measures are necessary to protect the legitimate rights and interests of Chinese investors and their overseas investments, as well as to safeguard China's overseas interests from threats or infringements. It emphasized that the protective and defensive nature of these regulations will not affect normal market transactions or the resolution of legitimate commercial disputes.
Market observers note that these regulations follow China's intervention in Meta's acquisition of Manus in April. Authorities determined that Manus, which grew based on Chinese technical talent and infrastructure, was circumventing regulations by relocating its headquarters to Singapore after attracting U.S. capital, a practice referred to as 'Singapore Washing.'
Xu Xiaoli, head of the WTO Law Research Center at China University of Political Science and Law, told Global Times that the new regulations demonstrate that overseas investments using the Singapore Washing method are illegal and serve as a warning to Chinese companies to strictly comply with overseas investment regulations.
* This article has been translated by AI.
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